A borrower with a $600,000 mortgage can put $400,000 on a variable rate and $200,000 on a two year fixed rate within the same loan, rather than choosing one or the other. That is a split loan, and it stays one of the more underused structures in Australian home lending, mostly because borrowers are usually only ever asked fixed or variable, not how much of each.
How a split loan actually works
A split loan divides a single mortgage into two or more portions, most commonly one fixed and one variable, managed as separate accounts under the one overall facility. Each portion carries its own rate and its own features. Most major lenders allow a loan to be split into 2 to 5 separate portions, which opens the door to staggering fixed terms rather than fixing the whole fixed component at once.
A borrower might fix $150,000 for 2 years and another $150,000 for 3 years, alongside a $300,000 variable portion, so the loan does not roll off fixed rates all at once and face a single large repayment shock if rates have moved by then. An offset account can generally only be attached to the variable portion, since fixed rate loans are structured differently at most lenders and rarely support a full offset facility.
Why borrowers choose a fixed and variable combination
The appeal of a split loan is balancing certainty against flexibility. The fixed portion locks in a known repayment for part of the loan, protecting it from a rate rise during the fixed term. The variable portion still benefits if rates fall, and typically allows unlimited extra repayments alongside an offset account for everyday cash flow.
This suits borrowers who want some protection against rate movements without giving up the flexibility a fully variable loan offers. A household with a stable income but irregular extra income, such as bonuses or rental receipts, might value having part of the loan open to unlimited extra repayments while another part carries a repayment they can plan around with certainty.
Can extra repayments go against the fixed portion of a split loan?
Most lenders cap additional repayments on a fixed rate portion, commonly between $10,000 and $30,000 a year, before break costs may apply. The variable portion generally allows unlimited extra repayments and can carry an offset account. Checking the specific fixed rate terms with the lender before directing extra funds toward that portion is worth doing, since limits and break cost calculations vary between lenders.
What determines the right split ratio
There is no standard or universally recommended split ratio. The right mix depends on factors such as income stability, how much of a rate rise a household could comfortably absorb, and whether the priority is repayment certainty or maximum flexibility. A borrower with irregular self-employed income may weigh these trade-offs differently to a borrower on a fixed salary with predictable expenses.
Some borrowers choose an even split, such as 50/50, simply to diversify their exposure to rate movements without needing to predict which direction rates move next. Others weight the split more heavily toward variable to preserve access to offset and extra repayments, accepting more exposure to rate changes in exchange for that flexibility. These are genuinely personal decisions, and a mortgage broker can walk through the trade-offs relevant to a specific financial situation.
The costs and flexibility trade-offs
Break costs can apply if the fixed portion is refinanced, paid out early, or restructured before the fixed term ends, and these costs can be significant depending on how far rates have moved since the fixed rate was set. This makes the fixed component best suited to borrowers who have reasonable certainty they will not need to exit that portion mid-term.
A split loan is typically structured as a single loan with two linked accounts rather than two entirely separate loans, so ongoing fees are usually no higher than a standard single-rate loan at the same lender. The main ongoing consideration is simply tracking two different rates and two different sets of terms rather than one, a manageable trade-off for the flexibility it provides.
Key Takeaways
- A split loan divides a single mortgage into fixed and variable portions, each with its own rate, and an offset account is generally only available on the variable portion.
- The main appeal is balancing certainty against flexibility, with part of the repayment staying predictable while the rest can benefit from rate falls or extra repayments.
- There is no standard split ratio. The right mix depends on income stability, savings habits, and how much rate movement a household can comfortably absorb.
- Extra repayments on the fixed portion are usually capped, often between $10,000 and $30,000 a year, before break costs apply, while the variable portion typically allows unlimited extra repayments.
- Break costs can apply if the fixed portion is refinanced or paid out early, so it works best when there is reasonable certainty about not needing to exit that portion mid-term.